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Six investment themes for the second half of 2015

29 June 2015

Speaking at a briefing in London this morning, Gareth Lewis, Chief Investment Officer at Tilney Bestinvest, which oversees over £9 billion of assets, revisits six themes from the start of the year that he believes will influence markets during the remaining months of 2015 and that are driving Tilney Bestinvest’s investment strategy:

1. This is still a banking crisis - Banking sector behaviour will continue to shape central bank monetary policy

“While the initial casualties of banking sector insolvency have either recovered (the US) or are recuperating (the UK), it’s important to remember that the crisis is not over. History tells us that loan loss provisioning within the Eurozone remains inadequate and that capital remains scarce. The European Central Bank’s asset quality review was a missed opportunity to stress this fact. The weak capital position of the banking system is forcing banks to rebuild their balance sheet through retained earnings, which is likely to keep credit conditions tight.

“Furthermore, the risk is growing that much of the capital allocated to the China growth story has been misallocated. Indeed we believe that weaker Chinese growth will create the next round of loan losses, as the crisis moves from the West to the East.”

2. Problems in the Eurozone made ECB QE inevitable – Good for equities, but not for the currency

“As expected, Eurozone QE launched to much fanfare in March. While this was good news for equities, it was not so good for the Euro which is why it has been beneficial for investors to have been currency hedged during this period. The magnitude of the movement surprised many, meaning the bulk of QE-driven depreciation is most likely already been priced in.”

3. Chinese stimulus and Yuan devaluation – Chinese economic slowdown will force further stimulus and could lead to competitive devaluation

“The Chinese economy continues to slow down, with the authorities seeking to engineer a soft rather than hard landing. This has prompted the People’s Bank of China to release a series of small, targeted stimulus measures in an attempt to control the slowdown. However the risk of policy error remains high.

“As China loses its competitive edge, there is an increasing risk they will look to join in the global competitive currency devaluation game.”

4. The failure of Fed policy – QE trapped in the financial system has significantly damaged the recovery

“QE appears not to have significantly helped the US economy directly, but it has inflated US asset prices and prevented a proper default cycle which unfortunately is often needed to maintain a healthy economy.”

5. The case for secular stagnation – Should we look to secular not cyclical factors?

“A number of structural factors in the global economy, combined with policy errors, have created a backdrop which could give rise to an environment of low growth, low interest rates and low investment returns for an extended period which may affect assumptions many investors use in the management of their money.”

6. Follow central bank liquidity not economic activity – In a world of low growth, central bank policy will be the major driver of asset returns

“Lessons from recent history suggest QE may not significantly stimulate economic activity, but it has been shown to be good for risk assets as price-insensitive central banks indiscriminately pump money into the system. Thus, we find ourselves in an unusual investment environment where prevailing market conditions drive investment returns more than fundamentals.”

Lewis concluded: “Given growing concerns over liquidity across a number of fixed income markets, we have reduced our fixed income exposure to underweight, building up our cash positions. We have also been neutral on equities for the past six months, having previously reduced an overweight position. We are neutral on alternative assets, with our overweight views on commercial property and absolute return offset by a zero weighting of the commodities sector.”

- ENDS -

Important information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.

Jason Hollands

Katy Moore

The value of your investment can go down as well as up, and you can get back less than you originally invested.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Tilney Group, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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